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Time to buy stocks?

Question: Thank you for your insight and advice you have shared on your show.

I am a 32 year old woman and I currently live with my parents because I do not make enough to live on my own. Because I live with my parents it means that I am slowly able to start saving a little bit of money, I was unemployed for over 18 months.

I want to and know that I need to start saving for retirement and one day buying a house, hopefully sooner than later. I have been reading lots of articles on what stock to buy for 2011, what stocks are green, the best long term investment etc. I just don't know where to start.

I don't have the $5,000 that some companies require and don't want to have to be involved in the stocks daily. I want an investment that will grow and I can add to a little bit every month. I have a CD and that does no earn me anything so when that expires I want to invest it as well.

My family has never invested so I can't go to them for help. I want to start investing for retirement/ house I just don't know where to go. Especially with just a little bit of savings and not the thousands they talk about in the articles I have been reading. Thank you for your help. Maaike, Emigrant, MT

Answer: I'm glad you want your money to be working harder for you. But at this stage in your life the downside risk of owning stocks may be too great. Instead, my suggestion is to continue focusin on building up your safe savings.

Here's why: Yes, you won't earn much on the money, just like your CD. But as it grows the money will be there when you need it to take advantage of a job opportunity, to pick up some extra credentials, to move into a place of your own, and so on.

It's an axiom of investing in the markets that the only way to create the chance of earning a higher return on your investment is to take greater risk. That means you could be showing losses on your stock market investments just when you need the money. That risk concerns me.

I like that you've reading up on stocks. And when you have a firmer financial foundation I would start building up a long-term portfolio for yourself. I would put in some more time learning about the risks and rewards of investing before plunking your savings into the markets. A good, short resource is The Elements of Investing by Burton Malkiel and Charles Ellis. (By the way, it doesn't seem that your employer offers the option of a 401(k) or similar retirement savings plan. If your employer does have a 401(k) I would start particpating.)

The bottom line: For now, while you're rebuilding after a long period of unemployment, I would keep on saving, safely. There will be another season for greater risk-taking.

About the author

Chris Farrell is the economics editor of Marketplace Money.
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